Results were in line with the company’s guidance, but Zebra reported steep margin contraction and issued an earnings outlook for the current quarter that fell short of analysts’ expectations.

Shares in the company, up about 40% this year through Monday’s close, dropped 18% in morning trading.

Chicago-based Zebra, named for the black and white stripes of the bar codes it prints, last year paid $3.5 billion to acquire Motorola’s enterprise business. The deal, Zebra’s biggest and at a price higher than its own market value, was a move to stave off competition by combining bar-code labels and radio tags with Motorola’s computers and scanners.

The former Motorola business accounted for nearly two-thirds of overall revenue during the period. Sequentially, revenue in the business rose about 2%. Sales in Zebra’s legacy business also grew, increasing 11% from last year’s quarter and benefiting from cross-selling efforts that are increasing post-acquisition

Adjusted for adverse exchange rates, enterprise sales grew 9% and legacy sales increased 17%––well above the 4% to 5% in combined revenue growth the company said it expected to achieve when it announced the Motorola deal.

Sales were robust in all geographic regions, highlighted by a more-than- threefold increase in both the Europe, Middle East & Africa segment and the North America segment. The EMEA revenue increase came even as Zebra lifted prices across Europe by 12% in an effort to offset the effect of the weaker euro.

But while sales surged, higher costs fully offset them. Total operating expenses rose to $406.7 million from $109.1 million a year earlier, largely due to acquisition and integration costs.

Gross margin, meanwhile, contracted to 44.2% from 49.3% a year earlier.

In an interview, Chief Executive
Anders Gustafsson
said the margin compression in the latest quarter was mainly due to one-time integration expenses and because of the cost of a growing new-business pipeline. The amount of new, large deals won over the quarter was more than Zebra anticipated, and while those new deals help grow market share, they have a short-term negative impact on margin because of a competitive environment.

Gross margin “is a bit of a speed bump” and Zebra has “work to do to make margins come back,” but Mr. Gustafsson added that he would much rather have solid revenue to work with at this point versus “the opposite problem.”

Zebra has previously indicated that a mix shift associated with the Motorola business, where products tend to have lower margins, has also pressured its profit margin.

In all, for the quarter, Zebra reported a loss of $76.3 million, up from $27.6 million a year earlier. On a per-share basis, the company’s loss grew to $1.50 a share from 54 cents. Excluding items like the aforementioned acquisition-related costs and foreign-exchange effects, profit per share increased to $1.05 from 92 cents.

Revenue rose to $889.8 million from $288.4 million.

Zebra had predicted adjusted earnings per share of $1 to $1.25 on revenue of $865 million to $895 million.

For the current quarter ending in September, Zebra expects to report adjusted earnings of $1.10 to $1.35 a share on revenue of $900 million to $930 million. Analysts have anticipated $1.41 in per-share profit and $916 million in sales.

Gross margin is expected to improve modestly from the second quarter, to a range of 44.8% to 45.8%.

Shares in the company recently traded at $90.46, down $14.06. Given the large price gain notched this year, investors “may have gotten ahead of themselves,” and appear to be taking profits, Mr. Gustafsson said.